1. What is Days Inventory Held (DIO)?

Days Inventory Held (DIO) is a financial metric that measures the average number of days a company holds its inventory before selling it. It indicates how efficiently a company manages its inventory and is a key component of the cash conversion cycle.

2. How Does the Calculator Work?

The calculator uses the DIO formula:

Where:

• \( DIO \) — Days Inventory Held (days)
• \( \text{Avg Inventory} \) — Average inventory value (currency)
• \( \text{COGS} \) — Cost of Goods Sold (currency/year)

Explanation: The formula calculates how many days it takes for a company to turn its inventory into sales. A lower DIO indicates more efficient inventory management.

3. Importance of DIO Calculation

Details: DIO is crucial for assessing inventory management efficiency, optimizing working capital, and improving cash flow. It helps identify potential inventory obsolescence and storage cost issues.

4. Using the Calculator

Tips: Enter average inventory in currency units and COGS in currency per year. Both values must be positive numbers. The calculator will compute the number of days inventory is typically held.

5. Frequently Asked Questions (FAQ)

Q1: What is a good DIO value?
A: Ideal DIO varies by industry. Generally, lower values are better, but compare with industry benchmarks. Retail typically has lower DIO than manufacturing.

Q2: How is average inventory calculated?
A: Average inventory = (Beginning Inventory + Ending Inventory) / 2, usually calculated for a specific period (quarterly or annually).

Q3: Why use 365 days in the formula?
A: 365 represents the number of days in a year, converting the annual COGS into a daily rate for the calculation.

Q4: What does a high DIO indicate?
A: High DIO may indicate slow-moving inventory, overstocking, or potential obsolescence, which ties up working capital.

Q5: How can companies improve their DIO?
A: Through better demand forecasting, inventory optimization, supplier management, and implementing just-in-time inventory systems.